“No Minister of Social Protection with a minimum of concern for the welfare of pensioners, would allow the current, bizarre, pensions landscape to persist”

APTI’s 5 Steps to Pensions Simplification

The Association of Pension Trustees of Ireland (APTI) are, once again, throwing light on the glaring anomalies of the Irish pensions system. They say these anomalies are part of an evolution which has been allowed to take place in a piecemeal fashion over the years, and are what make Irish pensions unnecessarily complex.

Tommy Nielsen, Chair of the APTI explained, “Many, many rules were created, not as part of a Government plan – there wasn’t any – but mainly by Revenue, and more often than not, for the purpose of protecting the Exchequer every time one supposed tax loop-hole or another appeared. In light of this, is it any wonder we ended up where we are?”

The APTI report that Department of Social Protection is about to launch a consultation on yet another pension structure, to add to the many permutations already in place – but this time under the guise of Auto-enrolment.

Mr. Nielsen argued, “It is another tactic to deflect from what really needs to be done. All the while what we really need – simplification – does not appear high on the agenda! As the Department has been reminded many times, most recently at the consultation on pensions simplification in 2015, nobody who advises pension savers believes that yet another vehicle is needed. The current system can accommodate auto-enrolment and this new vehicle is simply a distraction. That’s particularly worrying, because focus will be lost on the most pertinent question in relation to auto-enrolment which is, who is going to pay for it?

“It will also allow us to be distracted from the necessity for pensions simplification. So far, simplification efforts have been reduced to platitudes like “there are too many pension schemes in Ireland” – which, with only 41% of the private sector workforce covered by one, is a strange attitude. Indeed, it seems the Department is overcome with the complexity – it has become a defence for paralysis. It ought not be like that, however. With a bit of courage, pensions simplification could be… simple.”

The pension trustee representatives contend that the main reason for complexity is that there are 13/15 types of pension vehicle in the Irish system – but just one or two are needed.

The APTI’s 5 Steps to Pensions Simplification…

To begin with, an auto-enrolment vehicle was already created in 2002; it’s called a PRSA. It is compulsory for employers to make a PRSA or other pension vehicle available to employees. It wouldn’t take much to make contributions compulsory and cap charges on such PRSAs – Voila – Auto-enrolment!

The next step is to change the practice, dictated by Revenue, whereby Approved Retirement Funds (ARF) must be run as separate vehicles. It’s an unnecessary complexity – which for example, was not repeated in the UK – and which it is within Revenue’s remit to change.

Discontinue the most recent pension vehicle, the PRSA-post-age-75. PRSAs-post-age-75 cannot be accessed by the pensioner but are still taxable (what’s that for a bad deal!). PRSAs however can be paid out at age 75 – if that interpretation was promoted, Revenue would get the tax; the pensioner would get the income, everybody would be happy – and we would have eliminated yet another pension structure.

The next step would require some, minimal, intervention by the Oireachtas. At the moment, every Occupational Scheme in the country is set up, one scheme, at a minimum, per employer. This practice has obviously led to a proliferation of schemes – for no apparent regulatory gain. In the UK, the trend is that occupational schemes are set up as master trusts, in effect clubbing all the efforts of service providers under the one umbrella. The effort has the effect of reducing the cost of running these schemes. At the moment, in this country only big schemes and pensioneer trustees achieve “economy of scale”. There is no reason why master trusts could not gain traction in this country – if only the Pensions Authority, with a bit of ministerial assistance, took on the job.

The last group of pensions to eliminate is the insured kind, also known as personal pensions and introduce legislation to turn them into PRSAs. As a rule, they are expensive and there are few consumer protection measures in place to make sure that consumers are treated fairly. As a result, the charges are generally high.

Mr. Nielson concluded, “I have, no doubt, set out a simplified picture of how pensions simplification can be achieved. More work has to be done. There is an urgent need, for example, to modernise the PRSA to take account of European funds legislation. However, this is an attempt at showing how pensions simplification could be simple and largely achieved by a ministerial commencement order, the rolling back on some archaic Revenue practices, and a bit of legislation. There is certainly no need to plead “complexity” as a defence for the paralysis which has been allowed to subsist for the past 16 years.

“In APTI, we are of the view, that no Minister of Social Protection with a minimum of concern for the welfare of pensioners, would allow the current, bizarre, pensions landscape to persist.”